Dangers of applying for a loan to reform your homeOn December 23, 2019 by Ana Funchess
Reforming a house does not usually come cheap. Especially if you don’t settle for a simple face wash. A comprehensive reform, depending on the quality of the materials used, can range between 300 and 700 dollars per square meter. Of course, for that price you can turn your old home into a totally new space. And if you are thinking of selling it, the reform will help you revalue your home.
However, what begins with such enthusiasm can end up becoming a real headache. Based on previous prices, renovating a house of 100 square meters can cost you between 30,000 and 70,000 dollars. Hence, many consider financing the operation on credit, with a personal loan. But borrowing has its risks, and if you do not expect that you can return the money, the walls of your home could collapse under the weight of debts.
Not being able to meet the credit costs for the reform
If you decide to apply for a loan to cover the reform, you must add the cost of interest. That is, if at first you had calculated spending 30,000 dollars on redesigning your home, you will have to add an extra 5,700 dollars. That is if you decide to finance the total of the operation within a period of five years, taking into account an interest rate of 7.07%, which was the average of last November.
To the interests you will also have to add the possible commissions that the credit has or the cost of the related products, such as for example the insurance that the bank may invite you to contract, as they indicate from the online loan comparator WealthCash. with.
But the main danger of financing the reform of the house on credit is not being able to deal with the debt. Experts recommend not dedicating more than 35% of the income to the payment of debts. So if you enter a thousand dollars net per month, your ability to maneuver would end up in a monthly fee of 350 dollars adding up your total debts. In fact, if you decide to squeeze your monthly payment capacity to the maximum, then you will not be able to take on other debts.
If, for any reason, you cannot meet your personal loan payments during the repayment period, the reform can become a nightmare. The bank will start charging you late payment fees and commissions for claiming the debt and, if the default is extended, it will include you in a delinquent file. If you finally do not pay what you owe, you can even resort to judicial proceedings and a judge could order the seizure of your present and future assets, such as the balance of one of your accounts or a portion of your payroll.
In addition to complying with the 35% barrier, if you want to be sure that you will be able to face the repayment of the credit, you can play with the term and early repayment. Extending the term of a loan is never advisable since the longer it is, the more interest increases (recovering the example mentioned above but extending the term of five to ten years, the interests would be nothing more and nothing less than almost 12,000 dollars) yes , the monthly fee would be much more affordable. In this sense, the ideal is to reduce the term as much as possible but making sure that you can pay the fee.
Another solution is to set a somewhat longer term to have the guarantee that, if you are in a hurry, you will have a low fee that you can support and, in turn, make early repayments whenever you can to reduce the debt. Of course, in this case you will have to contract a loan that does not charge commissions to return capital early. In this way, the advantage of extending the term (lower installments) is used, but the debt does not become more expensive, since the credit is amortized in advance whenever possible.